Resource Real Estate Opportunity REIT, Inc. - FORM 8-K - EX-99.2 - EXHIBIT 99_2 - September 4, 2013

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8-K - 8-K - Resource Real Estate Opportunity REIT, Inc.form8-kpaladin09_2013.htm
EX-99.1 - EXHIBIT 99_1 - Resource Real Estate Opportunity REIT, Inc.ex99_1unauditedjune302013a.htm


Exhibit 99.2


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
Table of Contents
 
 
Page
 
 
 
Unaudited Proforma Consolidated Balance Sheets as of June 30, 2013
 
 
 
 
Unaudited Proforma Consolidated Statements of Operations and Comprehensive Loss for the six months ended June 30, 2013
 
 
 
 
Unaudited Proforma Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2012
 
 
 
 
Notes to the Unaudited Proforma Consolidated Financial Statements
 



1



Unaudited Pro Forma Consolidated Financial Statements of Resource Real Estate Opportunity REIT, Inc.
    

The Unaudited Pro Forma Consolidated Financial Statements (“pro forma financial statements”) give effect to the proposed merger of Resource Real Estate Opportunity REIT, Inc. (the “Company”) of Paladin Realty Income Properties, L.P. and subsidiaries (“Paladin OP”). The Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2013 gives effect to the Paladin OP merger as if it had been consummated on June 30, 2013 and includes historical data as reported by the separate companies as well as adjustments that give effect to events that are directly attributable to the Paladin OP acquisition and that are factually supported. The Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2012 and for the six months ended June 30, 2013 give effect to the Paladin OP merger as if it had been consummated on January 1, 2012 and include historical data as reported by the separate companies, as well as adjustments that are directly attributable to the Paladin OP merger, are expected to have a continuing impact, and are factually supported.

The pro forma adjustments reflecting the pending consummation of the Paladin OP merger are based upon the acquisition method of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") and upon the assumptions set forth in the notes included in this section. The pro forma financial statements have been prepared based on available information, using estimates and assumptions that management believes are reasonable. These estimates and assumptions affect reported amounts of assets and liabilities and other disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates and assumptions are preliminary and have been prepared solely for the purposes of developing this unaudited pro forma consolidated financial information. The unaudited pro forma consolidated balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable net assets acquired. The pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to reflect the results the consolidated entity may achieve in future periods or the historical results that would have been obtained had the Company and Paladin OP been a consolidated entity during the relevant periods presented.

The assumptions used and adjustments made in preparing the pro forma financial statements are described in the notes hereto, which should be read in conjunction with the unaudited pro forma financial statements. The unaudited pro forma financial statements and related notes contained herein should be read in conjunction with the historical financial statements and related notes of the Company and Paladin OP.




2


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 2013
(in thousands)
(unaudited)
 
 
 
 Historical
 

 

 

 
Historical
 
Adjusted
 
 
 
 
 
 
 
 Resource
 
 Paladin
 
 Proforma
 

 
 Proforma
 
 Real Estate
 
 OP
 
 Adjustments
 
 Notes
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
Rental Properties, net
$
202,944

 
$
176,934

 
$
29,799

 
A
 
$
409,677

Loans held for investments, net
1,756

 
—

 
—

 
 
 
1,756

Identified intangible assets, net
1,967

 
—

 
—

 
 
 
1,967

Assets of discontinued operations
216

 
—

 
—

 
 
 
216

 
206,883

 
176,934

 
29,799

 
 
 
413,616

Less: Accumulated depreciation and amortization
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
74,919

 
11,758

 
(10,448
)
 
B
 
76,229

Restricted cash
72

 
1,817

 
—

 
 
 
1,889

Prepaid expenses and other assets, net
1,632

 
2,063

 
—

 
 
 
3,695

Stock subscriptions receivable
2,242

 
—

 
—

 
 
 
2,242

Due from related parties
461

 
—

 
—

 
 
 
461

Accounts receivable other
312

 
—

 
—

 
 
 
312

Tenant receivables, net
415

 
—

 
—

 
 
 
415

Deposits
153

 
—

 
—

 
 
 
153

Deferred financing costs, other
697

 
—

 
—

 
 
 
697

Deferred offering costs
1,058

 
—

 
—

 
 
 
1,058

Total Assets
$
288,844

 
$
192,572

 
$
19,351

 
 
 
$
500,767

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 
 
 
 
 
 
 

Liabilities:
 
 
 
 
 
 
 
 
 
Mortgages payable
$
8,945

 
$
146,044

 
—

 
 
 
$
154,989

Revolving credit facility
760

 
—

 
—

 
 
 
760

Trade accounts payable
2,070

 
1,321

 
—

 
 
 
3,391

Accrued expenses and other liabilities
3,599

 
2,183

 
—

 
 
 
5,782

Due to related parties
1,346

 
—

 
—

 
 
 
1,346

Tenant prepayments
339

 
—

 
—

 
 
 
339

Security Deposits
1,152

 
—

 
—

 
 
 
1,152

Distribution payable
1,183

 
—

 
—

 
 
 
1,183

Liabilities of discontinued operations
102

 
—

 
—

 
 
 
102

Total liabilities
19,496

 
149,548

 
—

 
 
 
169,044

 
 
 
 
 
 
 
 
 
 
Stockholders' equity
 
 
 
 
 
 
 
 
 
Partners' capital
—

 
33,349

 
(33,349
)
 
C
 
—

Noncontrolling interests
—

 
9,675

 
—

 
 
 
9,675

Preferred stock (par value $.01; 10,000,000 shares authorized, none issued)
—

 
—

 
—

 
 
 
—

Common stock (par value $.01; 1,000,000,000 shares authorized and 35,896,959 shares issued, and 35,861,870 shares outstanding
359

 
—

 
53

 
D
 
412

Convertible stock (par value $.01; 50,000 shares authorized, issued and outstanding)
1

 
—

 
—

 
 
 
1

Additional paid-in capital
315,603

 
—

 
52,647

 
D
 
368,250

Accumulated deficit
(46,615
)
 
—

 
—

 
 
 
(46,615
)
Total stockholders' equity
269,348

 
43,024

 
19,351

 
 
 
331,723

Total liabilities and stockholders' equity
$
288,844

 
$
192,572

 
$
19,351

 
 
 
$
500,767


3


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(in thousands, except per share data)
(unaudited)

 
 
 
 Historical
 

 

 

 
Historical
 
Adjusted
 
 
 
 
 
 
 
 Resource
 
 Paladin
 
 Proforma
 

 
 Proforma
 
 Real Estate
 
 OP
 
 Adjustments
 
 Notes
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
Rental income
$
15,309

 
$
11,904

 
$
—

 
 
 
$
27,213

Other income
—

 
1,448

 
—

 
 
 
1,448

Gain on foreclosures
67

 
—

 
—

 
 
 
67

Interest income
115

 
2

 
—

 
 
 
117

Total Revenues
15,491

 
13,354

 
—

 
 
 
28,845

 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
Rental operating
9,875

 
4,908

 
—

 
 
 
14,783

Real property taxes
—

 
948

 
—

 
 
 
948

Acquisition costs
2,518

 
—

 
—

 
 
 
2,518

Foreclosure costs
49

 
—

 
—

 
 
 
49

Management fees - related parties
1,646

 
242

 
294

 
E
 
2,182

General and administrative
2,567

 
31

 
(31
)
 
F
 
2,567

Loss on property impairment
—

 
—

 
—

 
 
 
—

Loss on disposal of assets
36

 
—

 
—

 
 
 
36

Depreciation and amortization expense
5,884

 
2,787

 
331

 
G
 
9,002

Property damage
—

 
368

 
—

 
 
 
368

Total expenses
22,575

 
9,284

 
594

 
 
 
32,453

 
 
 
 
 
 
 
 
 
 
Other (expense) income
 
 
 
 
 
 
 
 
 
Gain on redemption of stock
22

 
—

 
—

 
 
 
22

Interest expense
(247
)
 
(4,144
)
 
—

 
 
 
(4,391
)
Loss from continuing operations
(7,309
)
 
(74
)
 
(594
)
 
 
 
(7,977
)
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests
—

 
124

 
—

 
 
 
124

 
 
 
 
 
 
 
 
 
 
Discontinued operations:

 

 

 
 
 
 
(Loss) income from discontinued operations
(674
)
 
6,996

 
(6,996
)
 
H
 
(674
)
Net gain on disposition
3,173

 
—

 
—

 
 
 
3,173

Income from discontinued operations
2,499

 
6,996

 
(6,996
)
 
 
 
2,499

Net loss and comprehensive loss
$
(4,810
)
 
$
6,922

 
$
(7,590
)
 
 
 
$
(5,478
)


 

 

 
 
 

Weighted average common shares outstanding
28,894

 

 
5,302

 
D
 
34,196

 
 
 
 
 
 
 
 
 
 
Basic and diluted loss per common share
$
(0.17
)
 


 

 
 
 
$
(0.16
)

4


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NAUDITED PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
YEAR ENDED DECEMBER 31, 2012
 
 
 
 Historical
 

 
 
 

 
Historical
 
Adjusted
 
 
 
 
 
 
 
 Resource
 
 Paladin
 
 Proforma
 
 
 
 Proforma
 
 Real Estate
 
 OP
 
 Adjustments
 
 Notes
 
Consolidated
Revenues
 
 
 
 
 
 
 
 
 
Rental income
$
17,149

 
$
23,059

 
$
—

 
 
 
$
40,208

Other income
—

 
2,662

 
—

 
 
 
2,662

Interest income
197

 
8

 
—

 
 
 
205

Total Revenues
17,346

 
25,729

 
—

 
 
 
43,075



 

 

 
 
 

Expenses

 

 

 
 
 

Rental operating
10,326

 
9,503

 
—

 
 
 
19,829

Real property taxes
—

 
1,795

 
—

 
 
 
1,795

Acquisition costs
3,713

 
—

 
715

 
I
 
4,428

Foreclosure costs
195

 
—

 
—

 
 
 
195

Management fees - related parties
1,756

 
489

 
548

 
E
 
2,793

General and administrative
3,053

 
69

 
(69
)
 
F
 
3,053

Loss on disposal of assets
246

 
—

 
—

 
 
 
246

Depreciation and amortization expense
8,340

 
5,987

 
12,666

 
G
 
26,993

Property damage
—

 
—

 
—

 
 
 
—

Total expenses
27,629

 
17,843

 
13,860

 
 
 
59,332



 

 

 
 
 

Other (expense) income

 

 

 
 
 

Interest expense
(546
)
 
(8,796
)
 
—

 
 
 
(9,342
)
Insurance proceeds in excess of cost basis
188

 
—

 
—

 
 
 
188

Loss from continuing operations
(10,641
)
 
(910
)
 
(13,860
)
 
 
 
(25,411
)


 

 

 
 
 
—

Noncontrolling interests
—

 
429

 
—

 
 
 
429



 

 

 
 
 

Discontinued operations:

 

 

 
 
 

(Loss) income from discontinued operations
298

 
266

 
(266
)
 
H
 
298

Net loss and comprehensive loss
$
(10,343
)
 
$
(215
)
 
$
(14,126
)
 
 
 
$
(24,684
)


 

 

 
 
 

Weighted average common shares outstanding
14,886

 

 
5,302

 
D
 
20,188



 

 

 
 
 

Basic and diluted loss per common share
$
(0.69
)
 

 


 
 
 
$
(1.22
)



5



RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of pro forma presentation

The accompanying unaudited pro forma consolidated financial statements exclude certain subsidiaries of the Paladin OP during the periods presented. These subsidiaries owned interests in the Lofton Apartments, which were sold to a third party in the second quarter of 2013, and the Beechwood Gardens Apartments, the sale of which is pending, along with certain assets and liabilities of the Paladin OP which were not included in the proposed acquisition ("Paladin Acquisition").

Note 2: Pro forma Adjustments
(A)
Represents the initial estimates of the step up in fair value for the property and equipment and intangible assets to reflect the allocation of the purchase price to identifiable net assets acquired.
(B)
Represents an elimination of cash which is in accordance with the Paladin Acquisition agreement.
(C)
Represents the elimination of the historical equity of Paladin OP.
(D)
Represents the estimated number of shares needed to be sold in the Company's initial public offering of common stock in order to fund the Paladin Acquisition.
(E)
Represents the elimination of pre-merger related party management fees associated with the Paladin Acquisition, offset by the additional related party management fees to be charged by the Company.
(F)
Represents the estimated change in general and administrative costs associated with the Paladin Acquisition.
(G)
Represents the increase in depreciation and amortization associated with the initial recording of Paladin OP's rental properties and identified intangible assets at fair value. The increase in depreciation and amortization is based on a preliminary allocation of purchase price to certain property and equipment and finite-lived intangible assets acquired. For purposes of the depreciation and amortization adjustment related to the incremental step up in fair value, the Company considered the useful lives and related step up value of the property and equipment and intangible assets as follows (dollars in thousands):
 
 Step up in
 
 
 
 Fair Value
 
Useful Life
Land
$
4,003

 
indefinite
Buildings *
12,969

 
27.5 years
Site Improvements
38

 
15 years
Equipment and Furniture and Fixtures
371

 
3 - 5 years
Intangible Assets
12,418

 
6 months
    Total
$
29,799

 
 

*
Includes the write-off of approximately $1.2 million related to pre-merger acquisition costs capitalized by Paladin OP in Rental Properties, net.
    
(H)
Represents the elimination of the discontinued operations associated with the Lofton Apartments, which were sold during the second quarter of 2013.

(I)
Represents the initial estimated acquisition costs associated with the Paladin Acquisition, primarily legal fees.





6

Resource Real Estate Opportunity REIT, Inc. Reports